Changes to company car tax and WLTP for ULEVs – a move back to company cars?
Electric vehicles, company car taxation and procurement
The basis on which Company Car Tax (CCT) is calculated is changing. Cars registered from April 2020 will be taxed based solely on the output from the Worldwide harmonised Light-duty vehicles Test Procedure (WLTP), which aims to be more representative of real-world driving conditions, compared to the previous test, the New European Driving Cycle (NEDC).
Under WLTP, a revised CO2 and MPG rating will be produced, and it is this CO2 rating that is applied to the List Price of the car to calculate the Benefit in Kind (BIK).
NEDC tests were not conducted on every model, but on a ‘family’ of models, whereas WLTP values depend, in part, on a consumer’s decisions to purchase additional accessories. On specific models, there is a range of values impacted by different trim levels and accessories.
The Treasury issued details of the proposed CCT changes in July 2019 and we now have draft legislation that shows the proposed company car taxation up to 2023.
The table shows the revised plans for electric and ultra-low emission vehicles (ULEV), and the difference if registered before or after 6 April 2020 for tax purposes. It is important to look out for the:
- Registration date: key dates are pre or post 06/04/2020
- CO2 rating: critical level for hybrids is 50g/km
- EV range: 5 bandings of full-electric ranges have a major impact on CO2%
Vehicle choice and timing is everything!
Choosing the wrong vehicle e.g. Plug-in Hybrid Electric Vehicle (PHEV) vs Battery Electric Vehicle (BEV) could impact on upfront allowances and reliefs.
Also, getting the timing right could impact on CO2 ratings and also whether the ‘old’ or ‘new’ BIK rates apply, adding several percent to the BIK tax and National Insurance Contributions (NIC) due.
The tax cost difference in vehicle choice could be c£8,256 over 3 years and between acquiring a vehicle registered on 05/04/2020 or on 06/04/2020 could be c£598.
Plug-In Car Grant
Typically applied for by the car manufacturers on the customer’s behalf and acts as a straight-forward discount to the list price.
A grant of up to 35% of the purchase price, capped at £3,500, is still available for cars with CO₂ emissions <50g/km and a zero-emission range >70 miles. This is usually taken directly from the purchase price and helps with the affordability of new cars, which are more expensive than conventional vehicles as the price of batteries is high, though this is reducing, and price parity is expected by about 2030.
There are a number of other factors to consider when deciding which cars to source:
- Capital Allowances: from April 2018 the amount that can be claimed is based on the CO2 emissions of the car
- Fuel: a company car fuel benefit is incurred whenever any fuel is provided, whether or not for private use or for a car that attracts a car benefit charge.
- Mileage allowances – HMRC approved rates for business mileage claims: The Advisory Electricity Rate is currently 4p per mile. These should be used instead of the Advisory Fuel Rate (AFR) as electricity is not a fuel for these purposes. If the car is a hybrid then the AFR rate applicable to the fuel type (petrol or diesel) applies. If the car is privately owned, the HMRC Authorised Mileage Allowance Payments (AMAP) can be used.
- Company car or private car? Careful consideration is needed before deciding whether a company car, salary-sacrifice or cash alternative is the way to go.
- Lease or purchase? Deciding whether to lease or purchase depends on many factors specific to the business.
- Outright Purchase: Whether savings or borrowings are used, the tax liability of the business will be reduced, through lower interest income or increased interest expense. Corporate tax relief will be given through capital allowance. VAT is chargeable on all new cars purchased in the UK or imported for use in the UK. If the car is intended to have any private use at all, none of this VAT is recoverable.
- Contract Hire: Tax relief is available on the lease rentals accruing during the hire period based on the CO2 rating of the car. VAT on lease rentals is fully recoverable, subject to normal VAT rules, but only 50% of the VAT allocated for the finance element of the lease is recoverable if there is any private use.